Almost half of European insurers think Solvency II has restricted their ability to make long-term investments, with many worried the regulation has negatively impacted their products.
That is according to a survey of 87 insurers across 17 EU markets, which finds that 48% have invested less in equities, long-term bonds and private placements because of Solvency II.
The findings also show that 58% of those providing long-term savings products with guarantees believe the regulation has been damaging to their offerings.
This has led to fears that insurers are coming under pressure to shift risk on to customers at a time when the EU has been looking to boost sustainable growth around Europe.
"The European Commission's 2020 review of Solvency II must address the regulation's overly conservative nature," said Andreas Brandstetter, president of Insurance Europe, which carried out the research.
"It treats insurers as if they were short-term traders when they are, in fact, mostly long-term investors."
Despite concerns about investments and products, it was found that three-quarters of insurers believe the regulation has improved risk management and governance practices.
Brandstetter said the industry supports Solvency II, and welcomed changes that regonise infrastructure as a separate asset class and remove barriers to standardised transparent securitisations.
However, he said the Solvency II risk margin should be reduced, and that it currently removes 200bn (£176bn) of capital from balance sheets that could instead be put to productive use.
He also called for a reduction in the calibration of long-term equity investments, which are currently based on trading risk and create a barrier to greater investment.
This comes after research by Willis Towers Watson (WLTW) found that the risk margin had become an increasingly material component of insurers' balance sheets.
The firm said this was encouraging insurers to offload risk using companies outside the EU, causing asset liability matching challenges, and growth in the longevity reinsurance market.
"We believe the high level of risk margin is resulting in higher premium rates and reduced competition, leading to worse value for consumers," WLTW director, Kamran Foroughi, commented.